EUR/USD has been consolidating this week, but expect volatility when U.S. CPI is released later on Thursday. If inflation undershoots forecasts, short EUR/USD positions will likely be squeezed, presenting a selling opportunity for longer-term bears.
The market is expecting September's U.S. CPI to rise 0.2% month-on-month and 8.1% annually following increases of 0.1% and 8.3% in August.
A forecast-beating outcome will likely see EUR/USD break below 0.9650 and head for its 2022 and 20-year low at 0.9528.
If the data comes in softer than expected, short-covering will likely take EUR/USD above the 21-day moving average at 0.9807. Yet unless there is a sizable shift in , the gains will likely be short-lived.
The euro zone continues to face severe economic headwinds from the war in Ukraine, data suggesting stagflation, and a trade shock resulting from slowing global growth.
A slight downside miss on U.S. CPI for one month is unlikely to change the bearish outlook for the single currency.
Selling EUR/USD on a break below 0.9650 or on rallies above 0.9810 is the favoured strategy in the wake of the U.S. CPI.
There is a downtrend line from February that comes in at 1.0010 and shorts should place a stop above that significant resistance.
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